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Happy Monday, the quote of the week is this: "Called prediction markets. Never seem to predict much."
This tweet from @captive_dreamer got 199,700 views last night — quoting Polymarket's announcement that Bolsonaro was projected to win Brazil's first round at 68%.
The implication: prediction markets got it wrong, therefore they don't work.
The problem is you can’t get a better misreading of what prediction markets actually do that that.
@zagrebbi responded with this chart…
It’s from a peer-reviewed study of 478 million Polymarket trades by researchers at TU Berlin and the German International University.
The finding: events priced at 20% on Polymarket happen approximately 20% of the time. Events priced at 68% happen approximately 68% of the time.
That line hugging the diagonal across the entire price range isn't a coincidence.
It's calibration. This is the paper: Exploring Decentralized Prediction Markets: Accuracy, Skill, and Bias on Polymarket.
What people often get wrong about prediction markets is that a 68% probability is not a prediction that something will happen.
It's a statement that if you ran this situation 100 times, it would resolve YES roughly 68 times and NO roughly 32 times.
The person complaining that prediction markets "never seem to predict much" is making the same error as someone who bets on a coin flip, gets tails, and says the coin is broken because heads was "supposed" to win.
The Reichenbach & Walther paper, 478 million trades, the largest Polymarket dataset ever studied…
…Found that market prices closely track realized probabilities and slightly outperform bookmaker odds. Less than a third of traders earn positive profits. The traders who do profit persistently do so by exploiting the biases of less skilled participants.
That's the product. That's what PMW is built to surface — where the skilled capital is already positioned, before the 32% scenario catches everyone off guard.
More to come. Exciting week ahead in election, prediction markets, and sports.
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